Multifamily housing is housing that is subdivided into a number of independent units (e.g., five or more independent units). Each unit is configured to house a person or group of people, hereinafter referred to as residents. The number of units in a multifamily housing property can vary from a relatively small number of units, such as in a building including five units, to a relatively large number of units, such as in an apartment building having hundreds of units.
Because of the amount of money involved in purchasing multifamily property, most potential purchasers do not purchase the multifamily housing property outright on a cash basis. Rather, lenders, such as banks, mortgage lenders, credit unions, and so on, offer multifamily mortgage loans to potential multifamily property purchasers. The mortgage allows the borrower to purchase the multifamily property and pay for the multifamily property over time, while also ensuring that the lender is repaid.
Lenders often sell the mortgages to a mortgage purchaser to obtain additional funding for further loans. Accordingly, the lender becomes a mortgage seller and sells the loan to a mortgage purchaser or participant in the secondary mortgage market.
A multifamily mortgage may be subdivided into multiple rights. For example, a note holder of a multifamily mortgage typically has the right to collect principal and interest payments whereas a servicer has a right to receive a portion of the interest payment to compensate the servicer for performing servicing in connection with the loan. Any right of the multifamily mortgage product may be further subdivided, e.g., into different cash flows. For example, an interest payment may include a servicing fee allocated to pay fees associated with the servicing of the loan.
Often, the mortgage seller may sell the multifamily mortgage loan to the mortgage purchaser, but retain some of the rights for the mortgage loan. For example, the mortgage seller may sell the multifamily mortgage loan but retain the servicing rights for the loan. Accordingly, the mortgage seller retains both an obligation, that of servicing the loan, and a benefit, entitlement to the servicing fees.
The mortgage purchaser may enter an agreement in advance to purchase a multifamily mortgage from the mortgage seller provided it meets pre-defined requirements. The agreement may also stipulate that the mortgage seller will be responsible for the approval, processing, and servicing of the loan. Such an agreement may be referred to as a delegated underwriting and servicing commitment.
A delegated underwriting and servicing commitment often includes a requirement that the mortgage seller will retain a portion of the risk of loss for the mortgage to be sold. For example, the seller retains a portion of the risk that a borrower defaults on the mortgage. The allocation of risk may be defined in a loss sharing provision (e.g., text, schedule, etc.) in the delegated underwriting and servicing commitment.
In order to enter a delegated underwriting and servicing commitment with a mortgage purchaser, a mortgage seller must meet predefined eligibility requirements of the mortgage purchaser. In addition, the mortgage purchaser may require the mortgage seller to comply with predefined requirements (e.g., a set of capital standards) on an ongoing basis during the term of the delegated underwriting and servicing commitment in order to maintain eligibility. The delegated underwriting and servicing commitment may require the mortgage seller and/or the mortgage purchaser to determine compliance based on the predefined requirements on a periodic basis.
It would be advantageous to provide a system and method for determining compliance with a delegated underwriting and servicing agreement. In addition, it would be advantageous to provide a system and method for determining compliance based on a predefined set of capital standards including a set of risk-based liquidity requirements.